MercoPress. South Atlantic News Agency

Argentina's Central Bank raises reference rate to cope with inflation

Argentina has the region's worst inflation and is second only to Russia worldwide

Argentina's Central Bank (BCRA) has adjusted the basic interest rate by 250 basis points to 47% per annum in nominal terms in a move to counter the effects of rampant inflation.

Also this 3-working-day week, the National Institute of Statistics and Census (Indec) announced that March inflation soared to 6.7%, the highest since April 2002. Prices rose 55.1% interannually, the steepest increase since June 2019, and 16.1% in the first quarter of the year.

With these figures, Argentina is the only country in the region among the world's worst five performing nations regarding inflation, the Argentine Institute of Fiscal Analysis (Iaraf) said in a study.

Russia continues to top the list following its invasion of Ukraine and the ensuing retaliatory measures by Western powers. Iaraf said the rankings were as follows Russia 7.6%, Argentina 6.7%, Turkey 5.5%, The Netherlands 3.6%, Spain 3%.

And within Latin America, the country was second to none: Argentina 6.7%, Chile 1.9%, Brazil 1.6%, Guatemala and Peru 1.4% (tie).

Boosting Argentina's inflation was Education (23.6%) due to the increase in private school fees; Clothing and Footwear (10.9%) due to the change of season; and Housing and utilities (7.7%), followed by Food and non-alcoholic beverages (7.2%).

According to Indec, bread, cereals, milk, dairy products, eggs, meat and by-products, sugar, sweets, chocolate, and candies accounted for most of the increases, which were also “driven by the international context.”

In March, “regulated” prices grew 8.4%, followed by the core CPI, with 6.4%, while seasonal products and services recorded an increase of 6.2%, mainly due to the increase in apparel and footwear. In other words, the 6.7% increase recorded in March was explained by a 4.28% increase in the prices of goods and 2.39% in services.

The BCRA on the other hand stated that the acceleration of prices in March was mainly explained by the international shock in the value of food and energy generated by the war between Russia and Ukraine.

Hence, “the determination of the appropriate interest rate increases in the face of a negative supply shock requires a different calibration than the one derived from a demand shock, since the objective is not to moderate the demand pressure, but to cut the second-round effects of the initial price increase, preserve monetary and exchange rate stability and protect the peso savings of Argentines, avoiding incentives that accelerate dollarization,” the BCRA explained.

“The rate hike is a necessary condition but, by itself, it is not enough to reduce inflation,” it went on. The BCRA also estimated that in April and May inflation will begin to decelerate and assured that “lending interest rates remain at levels compatible with the promotion of investment and production.”